A $1 million mountain of debt is a tall order to conquer, but John from North Carolina called in to The Ramsey Show with that major challenge.
His business failed and he owes money to just about everyone.
Must Read
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don’t have to deal with tenants or fix freezers. Here’s how
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and 3 simple steps to fix it ASAP
- Robert Kiyosaki says this 1 asset will surge 400% in a year — and he begs investors not to miss its ‘explosion’
Dave Ramsey’s advice? “Screw ’em.” (1)
"I don’t know if you’re going to make it or not, mathematically. And it’s a secondary concern; I’m concerned that you make it, and that your wife makes it, and your marriage makes it and your kids make it,” he added. “And the rest of these people can jump off a cliff."
Ramsey told John that his top priority should be taking care of his family — both emotionally and financially.
Holding your family together comes first
Ramsey asked for a breakdown of John’s debts: $250,000 in U.S. Small Business Administration (SBA) loans, $350,000 to the IRS, $100,000 in credit card debt, $250,000 on his mortgage, $8,000 on his car and about $23,000 in accountant and attorney fees.
Ramsey then asked John, 33, about his family: He’s been married for 8 years and has three kids.
“I remember being right where you are,” Ramsey said. “I was 28 with two [kids]. And I didn’t make it. I ended up bankrupt. But I can share with you a couple of things. One is: this stuff will destroy your marriage if you don’t fight for your marriage.”
For Ramsey, this was the more important message. He urged John to have an open and honest talk with his wife and keep their relationship strong through the difficult journey ahead. “You have to sit down together and say, ‘Regardless of what happens, we’re it, we’re doing it, we’re in it to win it,’” he said.
Ramsey also said covering the family’s basic needs should come before paying any creditors.
“Paying the first mortgage on the residence, so we have a place to eat, we have food and water and utilities, trumps anybody else’s request,” he said. “No one gets in line in front of your family, do you hear me, sir?”
Then Ramsey turned to the math.
“The SBA is gonna get what they deserve, probably, which is nothing, cause they’re bankruptable, the IRS is not bankruptable … so that thing right there’s a real mess. You may end up selling the house to clear the stinkin’ IRS.”
The next step was to consult a bankruptcy attorney.
“I’m not telling you to file, but you need to learn what your options are because No. 1 is not credit cards — that can jump in a creek … They get nothing. And the SBA screw ’em, they get nothing right now,” Ramsey said. “And we’re gonna work on the IRS.”
Finally, he prioritized keeping the car, as John will need it for work. But he may have to sell his house to clear his debt with the IRS.
Read more: I’m almost 50 and have nothing saved for retirement — what now? Don’t panic. These 6 easy steps can help you turn things around
Most Americans carry debt
While John’s debt situation is extreme, he’s far from alone. Most Americans are in debt.
A 2024 analysis by Ramsey Solutions found the average U.S. adult owes $66,772. It also found that: (2)
- 77% of U.S. households are carrying some kind of debt.
- The average credit card debt for American households is $19,865.
- The average mortgage debt for American households is $230,905.
- The average auto loan debt for American households is $36,832.
Debt can feel inescapable, especially when high-interest credit cards are involved. But with the right financial planning, it’s possible to climb out.
Two of the most popular approaches are the debt snowball and the debt avalanche methods.
With the debt snowball method, you focus on paying off your smallest debt first while making minimum payments on the rest. Once it’s gone, move to the next-smallest. That builds momentum and motivation.
The downside? You’ll pay more in interest over time.
The debt avalanche method focuses on the debt with the highest interest rate first, which saves more money but can be harder to stick with since the biggest debt is often the toughest to tackle.
Another option is a debt consolidation loan. This can simplify multiple high-interest payments into one, often with a lower interest rate. (3) The lender pays off your creditors, and you make a single monthly payment to the lender over a set timeline.
When should someone file for bankruptcy?
If your financial situation is so serious — like John’s — that you can’t realistically dig your way out, bankruptcy might be the next step.
Some debts, however, can’t be wiped out — including what you owe the IRS. That’s why Ramsey told John he might need to sell his home to pay off his tax debt.
Bankruptcy is a major decision that affects your finances for years. If you think it’s your only option, consult a bankruptcy attorney or a credit counseling agency first. You’ll need to complete credit counseling from a government-approved organization before filing. The U.S. Trustee Program provides a state-by-state list of approved agencies.
The Federal Trade Commission (FTC) recommends checking with your attorney general and local consumer protection agency before choosing a credit counseling service. (4)
Moving forward
Once you’ve got a plan to eliminate debt, it’s time to focus on your future.
As your balances shrink, work on building a sustainable budget that helps you save for retirement and create an emergency fund.
A three- to six-month emergency fund can ensure that no matter what life throws at you, you can stay out of debt and remain on solid financial footing.
What to read next
- Are you richer than you think? 5 clear signs you’re punching way above the average American’s wealth
- Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich — and ‘anyone’ can do it
- This tiny hot Costco item has skyrocketed 74% in price in under 2 years — but now the retail giant is restricting purchase. Here’s how to buy the coveted asset in bulk
- 22 US states are now in a recession or close to it — protect your savings with these 5 essential money moves ASAP
Join 200,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
The Ramsey Show (1); Ramsey Solutions (2); CNBC (3); National Association of Attorney Generals (4).
This article originally appeared on Moneywise.com under the title: North Carolina man owes nearly $1M after business fails — Dave Ramsey’s advice cuts straight to his top priority
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.